Key Thought of the Day: China Today is Like Japan in 1989

-edited

China is slowly and surely going down the path of Japan. It is aging rapidly as bad bank debts pile up.

‘Japanification’ Stalks the US, Europe, and China

The Financial Times comments ‘Japanification’ stalks the US and Europe

The FT did not include China in its discussion.

Let's take a look down that path.

Japanification of China Well Underway

A Fascinating Conversation With Renowned Short Seller Jim Chanos on Hedgeye TV got me thinking more about China.

I made 15 notes. Consider notes 4 and 6.

4: China is still the biggest real estate bubble in history.

6: Similarities between Japan in 1980's and China Today.

China’s Looming Crisis

Please consider China’s Looming Crisis: A Shrinking Population.

A decline in the birth rate and an increase in life expectancy means there will soon be too few workers able to support an enormous and aging population, the academy warned. The academy estimated the contraction would begin in 2027, though others believe it would come sooner or has already begun.

The government has recognized the worrisome demographic trend and in 2013 began easing enforcement of the “one child” policy in certain circumstances. It then raised the limit to two children for all families in 2016, in hopes of encouraging a baby boom. It did not work.

Dateline 2050 Projection

Replacement Level Fertility

One cannot lay all the blame for this on one child policy.

The US is also below replacement level fertility.

Please don't suggest the answer is immigration.

Europe is aging far faster than the US, and we saw what happened to Merkel's open arms invitation of refugees who could not speak German and had no skills at all.

China, like Japan in the 1990s, Will Be Dominated by Huge Zombie Banks

Please consider China, like Japan in the 1990s, Will Be Dominated by Huge Zombie Banks

Population Demographics

China resembles Japan in what is arguably the most important long-term factor affecting debt and prices: population demographics.

Japan’s paradigm shifted when it’s workforce began to shrink, which was ~15 years before its overall population began shrinking, and China is in a very similar position today.

$250 Trillion in Global Debt: How Can That Be Paid back?

In light of population demographics, increasing needs of healthcare of retirees, and massively underfunded pensions I again ask, $250 Trillion in Global Debt: How Can That Be Paid back?

Population demographics alone show the futility of central bank efforts to cram more debt into a global financial system choking on debt.

A currency crisis awaits, please click on the above link for further discussion.

Meanwhile, please ask, what the hell China is going to do with the massive number of vacant and unaffordable apartments it is building.

Addendum - Michael Pettis Chimes In

Mike "Mish" Shedlock

Comments (50)
No. 1-25
Sechel
Sechel

Interesting comparison. One of Japan's problems is a low birth rate. I believe China's is lower. Domestically the rhetoric Trump puts out on China is the same he did against Japan in the 80's. Both are natural resource constrained. I"m sure there are many more differences.

Roadrunner12
Roadrunner12

The "pig in the python" baby boomers are hitting retirement age. 10,000 Americans and 1000 Canadians turn 65 every single day and this process goes on for like the next 10 years. 1/2 of these have no retirement savings going into retirement. The US already is roughly 23 trillion in debt and will soon need just a trillion/year just to service the debt at extremely low interest rates.

Medicare and Social Security, pension plans, healthcare costs will feel the pinch.

To top if off, those that do have savings will likely have a good chunk of it in the extremely overvalued stock market, just imagine what the scenario looks like if we have a precipitous drop like the 30s and it takes 25 years for the markets to get back to similar levels. Not a pretty picture.

This of course was known years ago and Canada raised CPP rates in 1997 and supposedly is sustainable till 2090. (Max CPP is one part of the supposed 3 leg stool with personal savings and company pension of which only 1/3 of Canadians have)

The US looks to be in a predicament shortly with social security, according to this article.

"The U.S., to cite just one example, may have to start trimming back Social Security benefits as early as 2034, according to official projections."

Rvrider
Rvrider

Whether China, Japan, Europe, or the USA, we’re in for record debt monetizing (inflation) followed by record population decline (deflation). We’re screwed, but the people population haters might have reason to celebrate.

Tony Bennett
Tony Bennett

"It is aging rapidly as bad bank debts pile up."

Aging rapidly … without US style entitlements. Good Luck!

Oh, don't worry about what you have done to the environment … it'll help you die off before your (soon to rapidly depreciate) RE investments run out.

Bam_Man
Bam_Man

I would suggest that China today is in fact far WORSE than Japan in 1990. The amount of outright fraud and Communist Party-directed mal-investment surely dwarfs that which occurred in Japan, prior to their bubble bursting in 1989.

astroboy
astroboy

I wonder if the solution long term is a fundamental change in the nature of the economy, at least the US. How much of GDP is fast food places, for example. I'd venture to say that three fourths of them could disappear without any inconvenience to anyone. As it stands now their contribution to the GDP is obesity, diabetes, and hospital bills, that is to say, nothing the US couldn't well do without.

If such workers could be moved into occupations which actually contributed something to society (which I expect would pay better too) then the burden of an expanding older population might not be so bad. True, I don't know how that could be done unless you have 1950s factory jobs return from the dead.

Not saying that's possible, just voicing the thought......

SMF
SMF

Since at least the early 60s, scientists have clamored over 'overpopulation'. The earth was supposed to about end in the 70s due to rampant growth. Hollywood promoted this idea via movies (Soylent Green), as did many others.

The reversed actually has occurred.

Does this not sound similar to 'climate change'?

davebarnes
davebarnes

Won't a nice war take care of the excess males? China could attack Russia in greater Siberia. Russia's nukes would then solve the excess housing unit problem.

TCW
TCW

A currency crisis will make the poor even poorer. People will be starving. Governments will be forced raise taxes much higher and/or confiscate assets.

davebarnes
davebarnes

"Please don't suggest the answer is immigration."

Why not?

Singapore seems to be increasing its population with a TFR of 0.83

Felix_Mish
Felix_Mish

Include people in productivity statistics. For instance, at somewhere in the 1 to 10 million dollar range per person born, how much value does the US produce per year?

If nothing else, this idea forces confrontation between differences of opinion that affect policy decisions. Are people a net positive or negative? What is the value of people around the world? What is the value of a person at a given age? Etc.

Ebowalker
Ebowalker

Anyone that thinks a central planner can somehow allocate resources properly while propping up gdp with government spending and not have it end it in disaster is an idiot.

Jackula
Jackula

I think you are spot on. For those of us old enough remember in the mid to late 80's all the Japanese driving around shopping for real estate especially here in California? A friend of mine used to make serious money appraising high-end real estate here in SoCal. His business died June'ish 2017, approx the time China started capital controls. The difference this time is we are running our economy like a bannana republic and may go down with em. We are quite a bit down the road to debt zombification as well.

thimk
thimk

well maybe , case in point here stateside . but legacy debt shouldn't be imposed on subsequent generations.

Greggg
Greggg

China has so real safety net for the elderly except their own children that can take care of them in their old age, but it's the age old tradition that the CCP interrupted with the one child policy. I wonder if the bulk of Chinese citizens really support the CCP as much as the CCP thinks they do?

Casual_Observer
Casual_Observer

At this point isnt the global banking system a zombie? Pick any country. They all have zombie banking systems supported by their central bank.

Tengen
Tengen

I agree that China is in some trouble but the 1989 Japan comparison does not seem apt. Japan was dealing with the fallout from the Plaza Accord and suffered for being such a heavily export based economy, but at least back then there was genuine demand and some form of price discovery.

Fast forward thirty years and the whole world is a ponzi scheme propped up by central bankers. Every currency is heavily manipulated and there is little real economy to speak of anywhere, without artificial demand collapse would be almost instantaneous.

As for demographics, I'd way rather be Japan than China. The Chinese gender imbalance is no joke and tens of millions of permanently single guys is a recipe for disaster. It'll take more than Sesame Credit incentives to keep that constant undercurrent of anger in check!

FromBrussels
FromBrussels

oh, here in Belgium we won t have that problem, at this very moment 20 something IS women, their 5O children, and what is left of their IS 'ambulance driving' men are about to come back 'home'....

Realist
Realist

Hi Mish. Pretty much what I have been talking about for the last four years. Debt and demographics are two of the biggest factors in my long term slogflation forecast.

In addition, the tendency of most governments and central banks is to try to keep the economy growing at all costs, and borrow growth from the future in order to keep the economy growing today.

The net result will be economic growth that continues to slow going forward. Expect 1% average growth over the next decade and zero growth after that.

Expect slowly declining standards of living for the vast majority going forward.

An economic collapse is possible if some shock occurs, but trying to predict when and what that shock might be is very difficult to do.

Six000mileyear
Six000mileyear

China's one child policy resulted in a behavior that decreased the fertility rates faster than those experience in the west. Couples wanted males, so abortions were performed to guarantee baby boys. Changing to a two child policy is too late because the boom in elderly will arrive before the two children are productive.

Blurtman
Blurtman

OMG! Run! Run!

But thank goodness for internet bitch sites where ahormonal men can emote.

crazyworld
crazyworld

If all factors remain pointing in the same direction as of today, in Europe we are all facing life-threatening problems because of the population decrease and the consequent invasion we now live by people who dont speak our language, have radical beliefs, and are not qualified at all.

If it go on that way we will get civil wars and countries partition. All that poor future, because our profits oriented private sector is willing to accept any integration reluctant low IQ worker in order to keep their lucrative production activity.

Personally I am incredibly happy when I see countries doing something efficient in order to control their population growth. The earth health was better off when the world population amounted to three billions.

As of China, their State central planning agencies plan the early massive introduction of robots everywhere . I hope this will work and be a good remedy for them in order to avoid following our stupid path to societal destruction.

As Mish pointed out many time, drive-less cars, trucks are almost ready to take over. Have you seen this Japanese robot (tokyo university) able to replace a common welder.? Too costly? Civil unrests will be far more expensive to us than to introduce massively robots. For the cost of taking care of ONE unwanted illegal including the cost of expulsion, we may buy at least one robot. Robots will contribute to governments taxes and national health and pension insurances plans but without drawing money from those.

As for the 250 trillions of debt we must not forget that around the world there should be an equivalent amount of deposits in the accounts of the final end beneficiaries of this debt creation. Soon or later countries facing some life-threatening financial crisis should force some of them to pay back if they are at the wrong place at the wrong moment.

DSB
DSB

A number of years ago Andy Xie did a nice projection of how China becomes Japan. An excellent read and a complement to this post.